IN THE UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF PENNSYLVANIA

: CIVIL ACTIONMARC BRAGG, : NO. 06-4925

:Plaintiff, :

:v. :

:LINDEN RESEARCH, INC. and :PHILIP ROSEDALE, :

:Defendants. :

M E M O R A N D U M

EDUARDO C. ROBRENO, J. May 30, 2007

This case is about virtual property maintained on a

virtual world on the Internet. Plaintiff, March Bragg, Esq.,

claims an ownership interest in such virtual property. Bragg

contends that Defendants, the operators of the virtual world,

unlawfully confiscated his virtual property and denied him access

to their virtual world. Ultimately at issue in this case are the

novel questions of what rights and obligations grow out of the

relationship between the owner and creator of a virtual world and

its resident-customers. While the property and the world where

it is found are “virtual,” the dispute is real.

Presently before the Court are Defendants’ Motion to

Dismiss for Lack of Personal Jurisdiction (doc. no. 2) and Motion

to Compel Arbitration (doc. no. 3). For the reasons set forth

below, the motions will be denied.

The virtual world at issue is an interactive computer1

simulation which lets its participants see, hear, use, and evenmodify the simulated objects in the computer-generatedenvironment. See Woodrow Barfield, Intellectual Property Rightsin Virtual Environments: Considering the Rights of Owners,Programmers and Virtual Avatars, 39 Akron L. Rev. 649, 649 (2006)(defining virtual world).

Second Life is hosted at http://secondlife.com.2

The term “avatar” derives etymologically from the3

Sanskrit word for crossing down or descent and was usedoriginally to refer to the earthly incarnation of a Hindu deity. Webster’s II New Riverside University Dictionary 141 (1998). Since the advent of computers, however, “avatar” is also used torefer to an Internet user’s virtual representation of herself ina computer game, in an Internet chat room, or in other Internetfora. See Wikipedia, Definition of Avatar, available athttp://en.wikipedia.org.

Judge Richard A. Posner has apparently made an4

appearance in Second Life as a “balding bespectacled cartoonrendering of himself” where he “addressed a crowd of otheranimated characters on a range of legal issues, includingproperty rights in virtual reality.” Alan Sipress, Where RealMoney Meets Virtual Reality, the Jury is Still Out, WashingtonPost, Dec. 26, 2006, at A1.

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I. BACKGROUND

A. Second Life

The defendants in this case, Linden Research Inc.

(“Linden”) and its Chief Executive Officer, Philip Rosedale,

operate a multiplayer role-playing game set in the virtual world1

known as “Second Life.” Participants create avatars to2 3

represent themselves, and Second Life is populated by hundreds of

thousands of avatars, whose interactions with one another are

limited only by the human imagination. According to Plaintiff,4

many people “are now living large portions of their lives,

Although participants purchase virtual property using5

the virtual currency of “lindens,” lindens themselves are boughtand sold for real U.S. dollars. Linden maintains a currencyexchange that sets an exchange rate between lindens and U.S.dollars. Third parties, including ebay.com, also provide additional currency exchanges.

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forming friendships with others, building and acquiring virtual

property, forming contracts, substantial business relationships

and forming social organizations” in virtual worlds such as

Second Life. Compl. ¶ 13. Owning property in and having access

to this virtual world is, moreover, apparently important to the

plaintiff in this case.

B. Recognition of Property Rights

In November 2003, Linden announced that it would

recognize participants’ full intellectual property protection for

the digital content they created or otherwise owned in Second

Life. As a result, Second Life avatars may now buy, own, and

sell virtual goods ranging “from cars to homes to slot machines.”

Compl. ¶ 7. Most significantly for this case, avatars may5

purchase “virtual land,” make improvements to that land, exclude

other avatars from entering onto the land, rent the land, or sell

the land to other avatars for a profit. Assertedly, by

recognizing virtual property rights, Linden would distinguish

itself from other virtual worlds available on the Internet and

thus increase participation in Second Life.

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Defendant Rosedale personally joined in efforts to

publicize Linden’s recognition of rights to virtual property.

For example, in 2003, Rosedale stated in a press release made

available on Second Life’s website that:

Until now, any content created by users forpersistent state worlds, such as Everquest®or Star Wars Galaxies , has essentiallyTM

become the property of the company developingand hosting the world. . . . We believe ournew policy recognizes the fact thatpersistent world users are making significantcontributions to building these worlds andshould be able to both own the content theycreate and share in the value that iscreated. The preservation of users’ propertyrights is a necessary step toward theemergence of genuinely real online worlds.

Press Release, Linden Lab, Linden Lab Preserves Real World

Intellectual Property Rights of Users of its Second Life Online

Services (Nov. 14, 2003). After this initial announcement,

Rosedale continued to personally hype the ownership of virtual

property on Second Life. In an interview in 2004, for example,

Rosedale stated: “The idea of land ownership and the ease with

which you can own land and do something with it . . . is

intoxicating. . . . Land ownership feels important and tangible.

It’s a real piece of the future.” Michael Learmonth, Virtual

Real Estate Boom Draws Real Dollars, USA Today, June 3, 2004.

Rosedale recently gave an extended interview for Inc. magazine,

where he appeared on the cover stating, “What you have in Second

Life is real and it is yours. It doesn’t belong to us. You can

Plaintiff has inundated the Court with press releases,6

newspaper articles, and other media containing representationsmade by Rosedale regarding the ownership of property on SecondLife. Plaintiff states in an affidavit that he reviewed andrelied on some of these representations. Bragg Decl. ¶¶ 4-10,65-68. It is of no moment that Plaintiff did not rely upon everysingle representation that Rosedale ever made regarding ownershipof virtual property on Second Life. The immense quantity of suchrepresentations is relevant to showing that these are notisolated statements, but rather, part of a national campaign inwhich defendant Rosedale individually and actively participated.

Linden taxes virtual land. In fact, according to7

Bragg, by June 2004, Linden reported that its “real estate taxrevenue on land sold to the participants exceeded the amount thecompany was generating in subscriptions.” Compl. ¶ 42.

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make money.” Michael Fitzgerald, How Philip Rosedale Created

Second Life, Inc., Feb. 2007.6

Rosedale even created his own avatar and held virtual

town hall meetings on Second Life where he made representations

about the purchase of virtual land. Bragg Decl. ¶ 68. Bragg

“attended” such meetings and relied on the representations that

Rosedale made therein. Id.

C. Plaintiffs’ Participation in Second Life

In 2005, Plaintiff Marc Bragg, Esq., signed up and paid

Linden to participate in Second Life. Bragg claims that he was

induced into “investing” in virtual land by representations made

by Linden and Rosedale in press releases, interviews, and through

the Second Life website. Bragg Decl. ¶¶ 4-10, 65-68. Bragg also

paid Linden real money as “tax” on his land. By April 2006,7

Bragg’s complaint contains counts under the8

Pennsylvania Unfair Trade Practices and Consumer Protection Law,73 P.S. § 201-1, et seq. (Count I), the California Unfair andDeceptive Practices Act, Cal. Bus. & Prof. Code § 17200 (CountII), California Consumer Legal Remedies Act, Ca. Civ. Code §1750, et seq. (Count III), fraud (Count IV), the California CivilCode § 1812.600, et seq. (Count V), conversion (Count VI),intentional interference with a contractual relations (CountVII), breach of contract (Count VIII), unjust enrichment (CountIX), and tortious breach of the covenant of good faith and fairdealing (Count X).

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Bragg had not only purchased numerous parcels of land in his

Second Life, he had also digitally crafted “fireworks” that he

was able to sell to other avatars for a profit. Bragg also

acquired other virtual items from other avatars.

The dispute ultimately at issue in this case arose on

April 30, 2006, when Bragg acquired a parcel of virtual land

named “Taessot” for $300. Linden sent Bragg an email advising

him that Taessot had been improperly purchased through an

“exploit.” Linden took Taesot away. It then froze Bragg’s

account, effectively confiscating all of the virtual property and

currency that he maintained on his account with Second Life.

Bragg brought suit against Linden and Rosedale in the

Court of Common Pleas of Chester County, Pennsylvania, on October

3, 2006. Linden and Rosedale removed the case to this Court8

(doc. no. 1) and then, within a week, moved to compel arbitration

(doc. no. 3).

II. MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION

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Defendant Philip Rosedale moves to dismiss all claims

asserted against him for lack of personal jurisdiction.

A. Legal Standards

A federal district court may exercise jurisdiction to

the same extent as the state in which it sits; a state, in turn,

may exercise jurisdiction over a non-resident defendant pursuant

to its so-called “long-arm statute.” Because the reach of

Pennsylvania’s long-arm statute “is coextensive with the limits

placed on the states by the federal Constitution,” the Court

looks to federal constitutional doctrine to determine whether

personal jurisdiction exists over Rosedale. Vetrotex Certainteed

Corp. v. Consol. Fiber Glass Products Co., 75 F.3d 147, 150 (3d

Cir. 1996); 42 Pa. C.S.A. § 5322(b).

Personal jurisdiction can be established in two

different ways: specific jurisdiction and general jurisdiction.

See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408,

414-16 (1984). Specific jurisdiction is established when the

basis of the “plaintiff’s claim is related to or arises out of

the defendant’s contacts with the forum.” Pennzoil Products Co.

v. Colelli & Assoc., Inc., 149 F.3d 197, 201 (3d Cir. 1998)

(citations omitted). General jurisdiction, on the other hand,

does not require the defendant’s contacts with the forum state to

be related to the underlying cause of action, Helicopteros, 466

In the conclusion of the argument section of his brief,9

for example, Bragg argues that Rosedale’s “representations andinducements properly form the basis of specific jurisdictionagainst Defendant Rosedale.” Pl.’s Resp. at 14.

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U.S. at 414, but the contacts must have been “continuous and

systematic.” Id. at 416.

Bragg does not contend that general jurisdiction exists

over Rosedale. Rather, he maintains that Rosedale’s

representations support specific personal jurisdiction in this

case. The Court therefore need only address whether specific9

jurisdiction exists.

In deciding whether specific personal jurisdiction is

appropriate, a court must first determine whether the defendant

has the minimum contacts with the forum necessary to have

reasonably anticipated being haled into court there. Pennzoil,

149 F.3d at 201 (citing World-Wide Volkswagen Corp. v. Woodson,

444 U.S. 286 (1980)). Second, once minimum contacts have been

established, a court may inquire whether the assertion of

personal jurisdiction would comport with traditional conceptions

of fair play and substantial justice. Id. at 201 (citing Burger

King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985) and Int’l Shoe

Co. v. Washington, 326 U.S. 310, 320 (1945)). The first step is

mandatory, but the second step is discretionary. Id.

After a defendant has raised a jurisdictional defense,

as Rosedale has in this case, the plaintiff bears the burden of

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coming forward with enough evidence to establish, with reasonable

particularity, sufficient contacts between the defendant and the

forum. Provident Nat’l Bank v. Cal. Fed. Savings & Loan Assoc.,

819 F.2d 434, 437 (3d Cir. 1987). “The plaintiff must sustain

its burden of proof in establishing jurisdictional facts through

sworn affidavits or other competent evidence. . . . [A]t no point

may a plaintiff rely on the bare pleadings alone in order to

withstand a defendant’s Rule 12(b)(2) motion to dismiss for lack

of in personam jurisdiction.” Patterson by Patterson v. F.B.I.,

893 F.2d 595, 604 (3d Cir. 1990). “Once the motion is made,

plaintiff must respond with actual proofs not mere allegations.”

Id.

B. Application

In support of the Court’s exercising personal

jurisdiction over Rosedale, Bragg relies on various

representations that Rosedale personally made in the media “to a

national audience” regarding ownership of virtual property in

Second Life. Bragg maintains that Rosedale made these

representations to induce Second Life participants to purchase

virtual property and that such representations in fact induced

Bragg to do so. Bragg also relies on the fact that he “attended”

town hall meetings hosted in Second Life where he listened to

Rosedale make statements about the purchase of virtual land.

The Supreme Court has also held, under different10

circumstances, that defamatory statements distributed in thenational media may support specific personal jurisdiction wherethose statements are relevant to a plaintiff’s claims. In Calderv. Jones, a Californian plaintiff sued a group of Floridiandefendants for placing a defamatory article about her in anationally circulated publication. 465 U.S. 783, 788-89 (1984). The plaintiff claimed that the defendants should be subject tojurisdiction in her home state of California. Id. The SupremeCourt held that, because the defendant’s intentional andallegedly illegal actions were expressly aimed at California and

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1. Minimum Contacts

The first question the Court must answer, then, is

whether Rosedale has minimum contacts with Pennsylvania

sufficient to support specific personal jurisdiction. The Court

holds that Rosedale’s representations--which were made as part of

a national campaign to induce persons, including Bragg, to visit

Second Life and purchase virtual property--constitute sufficient

contacts to exercise specific personal jurisdiction over

Rosedale.

Wellness Publishing v. Barefoot provides useful

guidance, albeit in a non-precedential opinion. 128 Fed. App’x

266 (3d Cir. 2005). In that case, the Third Circuit recognized

that an advertising campaign of national scope could not, on its

own, provide the basis for general jurisdiction in any state

where advertisements were aired, but that under the appropriate

circumstances, such contacts could provide the basis of

exercising specific jurisdiction over a defendant in a particular

state where the advertisements were aired. Id.10

caused harm there, jurisdiction over the defendants was “properin California based on the ‘effects’ of their Florida conduct inCalifornia.” Id. at 789. Here, as in Calder, Rosedale’s allegedmisrepresentations are relevant to Bragg’s claims of fraud anddeceptive practices, but Bragg has not argued that jurisdictionis proper based on Calder’s effects-based jurisprudence.

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In Barefoot, a group of defendants produced

infomercials for calcium supplements and related products that

ran nationally, including in New Jersey. Id. at 269. The

defendants also processed telephone orders for products promoted

in the infomercials. Id. The District Court dismissed the

plaintiff’s case for lack of personal jurisdiction in New Jersey.

Id. at 270. On appeal, however, the Third Circuit reversed,

holding that specific personal jurisdiction existed over the

defendants that ran the infomercials in New Jersey. Id. In

doing so, it analogized the defendants’ promotional activities to

the maintenance of a website. Id. (citing Toys “R” Us, Inc. v.

Step Two, S.A., 318 F.3d 446, 452 (3d Cir. 2003)).

Under the Third Circuit’s jurisdictional analysis of

websites, if a defendant website operator intentionally targets

the site to the forum state and/or knowingly conducts business

with forum state residents via the site, then the “purposeful

availment” requirement is satisfied. Toys “R” Us, 318 F.3d at

452. In addition, a court may consider the level of

interactivity of the website and the defendant’s related

non-Internet activities as part of the “purposeful availment”

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calculus. Id. at 453.

The Third Circuit applied this same jurisdictional

analysis in Barefoot to hold that the defendants who ran the

infomercials in New Jersey could be subject to personal

jurisdiction in that state. 128 Fed. App’x at 270. First, it

reasoned that, as with the mere operation of a website, “an

advertising campaign with national scope does not by itself give

rise to general jurisdiction in a state where it is broadcast.”

Id. That principle was inapplicable, however, because it

involved precedents where the plaintiff’s injuries were unrelated

to the broad case of the advertisement in the forum state, which

were therefore inapplicable to a specific-jurisdiction inquiry.

Id. (citing Gehling v. St. George’s Sch. of Med., Ltd., 773 F.2d

539 (3d Cir. 1985); Giangola v. Walt Disney World Co., 753 F.

Supp. 148 (D.N.J. 1990)). Second, and most important for this

case, the Third Circuit reasoned:

[T]he advertisement in this case inducedviewers to establish direct contact with [thedefendant] by calling its toll-free phonenumber to place orders. This inducementdestroys any semblance of the passiveadvertising addressed in Giangola, 753 F.Supp. at 155-56, which expresslydistinguished advertisements in the form ofdirect mail solicitations. For purposes ofjurisdictional analysis, an infomercialbroadcast that generates telephone customersis the equivalent of an interactive web-sitethrough which a defendant purposefullydirects its commercial efforts towardsresidents of a forum state.

The Third Circuit has consistently held that11

advertising in national publications does not subject a defendantto general jurisdiction in every state. See, e.g., Gehling, 773F.2d 539 at 542; Giangola, 753 F. Supp. at 156 (“In an age ofmodern advertising and national media publications and markets,plaintiffs’ argument that such conduct would make a defendantamenable to suit wherever the advertisements were aired wouldsubstantially undermine the law of personal jurisdiction.”). InGiangola, for example, a district court held that plaintiffs’viewing of advertisements displaying Walt Disney World “as a mustvisit” on plaintiffs’ vacation agenda, and which in fact inducedplaintiffs to visit Disney World, did not constitute “minimumcontacts” sufficient to justify personal jurisdiction in theplaintiffs’ subsequent personal injury action, because theadvertisements were not in any way related to the plaintiffs’personal injury action. 753 F. Supp. at 155. Moreover, as theThird Circuit noted in Barefoot, the advertisements were passivein nature and did not involve any interactivity with theplaintiffs. Id.; Barefoot, 128 Fed. App’x at 270.

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Id. at 270 (some internal citations omitted).

Barefoot’s analysis applies to the facts of this case.

First, Bragg has provided evidence that Rosedale helped

orchestrate a campaign at the national level to induce persons,

including Bragg, to purchase virtual land and property on Second

Life. As part of the national campaign, Bragg made

representations that were distributed nationally, including in

Pennsylvania. Moreover, this case does not involve “injuries

unrelated to the broadcast of the advertisement in the forum

state,” as was the case in Gehling or Giangola. Cf. Barefoot,11

128 Fed. App’x at 270. Rather, Rosedale’s representations

constitute part of the alleged fraudulent and deceptive conduct

at the heart of Bragg’s claims in this case.

Second, like the role of the infomericals in Barefoot,

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Rosedale’s personal role was to “bait the hook” for potential

customers to make more interactive contact with Linden by

visiting Second Life’s website. Rosedale’s activity was designed

to generate additional traffic inside Second Life. He was the

hawker sitting outside Second Life’s circus tent, singing the

marvels of what was contained inside to entice customers to

enter. Once inside Second Life, participants could view virtual

property, read additional materials about purchasing virtual

property, interact with other avatars who owned virtual property,

and, ultimately, purchase virtual property themselves.

Significantly, participants could even interact with Rosedale’s

avatar on Second Life during town hall meetings that he held on

the topic of virtual property.

Viewed in context, Rosedale’s marketing efforts in this

case are more “interactive” rather than “passive.” C.f. Barefoot,

128 Fed. App’x at 270 (emphasizing that “interactive” contacts

are more significant for jurisdictional purposes than “passive”

contacts). Thus, they provide more than just “tangential”

support for specific personal jurisdiction. See Mesalic v.

Fiberfloat Corp., 897 F.2d 696, 700 n.10 (3d Cir. 1990) (noting

that a defendant’s marketing strategy, including advertising in

national publications distributed in the forum, provided only

Because the Court bases its holding on the interactive12

nature of the marketing scheme, the its holding does not “meanthat there would be nationwide (indeed, worldwide) jurisdictionover anyone and everyone who establishes an Internet website” ormade representations posted on a website accessible throughoutthe world. Weber v. Jolly Hotels, 977 F. Supp. 327, 333 (D.N.J.1997).

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“tangential” support for specific personal jurisdiction).12

The Court’s decision is also consistent with the

decisions of courts in other jurisdictions which have extended

specific jurisdiction over defendants who have made

representations in national media when the dispute arose directly

from those representations. See, e.g., Indianapolis Colts, Inc.

v. Metro. Baltimore Football Club Ltd. P’ship, 34 F.3d 410, 412

(7th Cir. 1994) (holding that national television broadcast into

the forum state was sufficient for personal jurisdiction); Caddy

Prods., Inc. v. Greystone Int’l., Inc., No. 05-301, 2005 U.S.

Dist. LEXIS 34467, *4-5 (D. Minn. 2005) (holding that the

defendant had sufficient contacts to support the exercise of

specific personal jurisdiction, which included the defendant’s

marketing efforts, such as attending a national trade show and

advertising in a national trade publication, coupled with

defendant’s shipment of the product into the forum state); Hollar

v. Philip Morris Inc., 43 F. Supp. 2d 794, 802-03 (N.D. Ohio

1998) (holding specific personal jurisdiction existed over

tobacco company that made false representations regarding smoking

to a national audience, which induced plaintiffs to continue

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smoking; it is “axiomatic that what is distributed and broadcast

nationwide will be seen and heard in all states.”) (internal

quotation omitted); Thomas Jackson Publ’g Inc. v. Buckner, 625 F.

Supp. 1044, 1046 (D. Neb. 1985) (holding that performance of

songs and interviews on national television supported finding of

specific personal jurisdiction over a defendant whose songs

infringed the plaintiff’s copyright).

Rosedale relies heavily on cases from other

jurisdictions for the proposition that his statements do not

subject him to personal jurisdiction in Pennsylvania because none

of the statements were targeted directly at Pennsylvania as

opposed to the nation at large. See Dfts.’ Reply at 3.

Rosedale’s first cited case, however, involves representations

specifically targeted at one state, as opposed to a national

audience, that merely could be accessed worldwide because they

were available on the Internet. See Young v. New Haven Advocate,

315 F.3d 256, 263 (4th Cir. 2002) (“[T]he fact that the

newspapers’ websites could be accessed anywhere, including

Virginia, does not by itself demonstrate that the newspapers were

intentionally directing their website content to a Virginia

audience. Something more than posting and accessibility is

needed to indicate that the newspapers purposefully (albeit

electronically) directed their activity in a substantial way to

the forum state. . .”). Rosedale did not target his

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representations at any particular state, but rather to the nation

at large. The other two cases cited by Rosedale are also

distinguishable, because they involved isolated statements that

were not, as is the case here, an integral part of a larger

publicity campaign of national scope. See Revel v. Lidov, 317

F.3d 467, 475 (5th Cir. 2002) (finding that the court lacked

personal jurisdiction over author of an Internet bulletin board

posting “because the post to the bulletin board was presumably

directed at the entire world” and was not “directed specifically

at Texas”); Griffis v. Luban, 646 N.W. 2d 527, 536 (Minn. 2002)

(“The mere fact that [the defendant], who posted allegedly

defamatory statements about the plaintiff on the Internet, knew

that [the plaintiff] resided and worked in Alabama is not

sufficient to extend personal jurisdiction over [the defendant]

in Alabama, because that knowledge does not demonstrate targeting

of Alabama as the focal point of the . . . statements.”). See

also Growden v. Ed Bowlin & Assoc., Inc., 733 F.2d 1149, 1151-52

& n.4 (5th Cir. 1984) (holding no personal jurisdiction existed

based on ads in two national publications for the sale of an

airplane, the crash of which was the subject of the litigation).

Accordingly, the Court finds that Rosedale has minimum

contacts with Pennsylvania sufficient to support specific

personal jurisdiction.

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2. Fair Play and Substantial Justice

The Court also finds that the exercise of personal

jurisdiction in this case would not offend due process. See

Lehigh Coal, 56 F. Supp. 2d at 569 (citing Burger King, 471 U.S.

at 477). The factors to be considered in making this fairness

determination are: (1) the burden on the defendant, (2) the forum

State’s interest in adjudicating the dispute, (3) the plaintiff's

interest in obtaining convenient and effective relief, (4) the

interstate judicial system’s interest in obtaining the most

efficient resolution of controversies and (5) the shared interest

of the several states in furthering fundamental substantive

social policies. Id.

Nothing on the record counsels strongly against

jurisdiction based on considerations of any undue burden to

Rosedale. Rosedale has not claimed that he does not have the

financial ability or that he would otherwise be irreparably

prejudiced by litigating this case here in Pennsylvania. The

Court also notes that Rosedale has able counsel on both coasts,

i.e., in both his home state of California and here in

Pennsylvania. Additionally, Pennsylvania has a substantial

interest in protecting its residents from allegedly misleading

representations that induce them to purchase virtual property.

Pennsylvania also has an interest, more particularly, in

vindicating Bragg’s individual rights. Finally, Bragg may obtain

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convenient and effective relief in Pennsylvania, the state in

which he initiated this action.

C. Fiduciary Shield Doctrine

The Court must also address Rosedale’s argument that,

because Rosedale made the alleged representations in his

corporate capacity as Chief Executive Officer of Linden, he

cannot be subject to personal jurisdiction based on those

representations.

The applicability of this so called “fiduciary shield”

doctrine is in dispute. Although it has not definitively spoken

on the issue, the Supreme Court appears to have rejected the

proposition that this doctrine is a requirement of federal due

process. See Calder v. Jones, 465 U.S. 783, 790 (1984)

(“[Defendants’] status as employees does not somehow shield them

from jurisdiction. Each defendant’s contacts with the forum

state must be assessed individually.”); Keeton v. Hustler, 465

U.S. 770, 781 n.13 (1984) (“We today reject the suggestion that

employees who act in their official capacity are somehow shielded

from suit in their individual capacity.”). Moreover, neither the

Pennsylvania Supreme Court nor the Third Circuit has squarely

addressed the applicability of the fiduciary shield doctrine.

See, e.g., Irons v. Transcor Am., 2002 WL 32348317, at *5 (E.D.

Pa. 2002).

Some Third Circuit precedent suggests that, where the13

alleged contacts involve a corporate agent’s personalinvolvement, the “corporate shield” doctrine is obviated. SeeAl-Khazraji v. St. Francis College, 784 F.2d 505, 518 (3d Cir.1986) (“An individual, including a director, officer, or agent ofa corporation, may be liable for injuries suffered by thirdparties because of his torts, regardless of whether he acted onhis own account or on behalf of the corporation.”). On otheroccasions, however, after finding personal jurisdiction hasexisted over a corporation, the Third Circuit has remanded toaddress the question of whether the individual corporate agentswere not subject to personal jurisdiction because their relevantcontacts were established in their roles as corporate officers. See Barefoot, 128 Fed. App’x at 269.

Numerous recent cases within this district have appliedthe fiduciary shield doctrine in one form or another. E.g.Schiller-Pfeiffer, Inc. v. Country Home Prods., Inc., 2004 WL2755585 (E.D. Pa. 2004) (“[A] defendant is not individuallysubject to personal jurisdiction merely based on his actions in acorporate capacity.”) (citing TJS Brokerage & Co. v. Mahoney, 940F. Supp. 784, 789 (E.D. Pa. 1996); D&S Screen Fund II v. Ferrari,174 F. Supp. 2d 343, 347 (E.D. Pa. 2001) (“As a general rule,individuals performing acts in their corporate capacity are notsubject to the personal jurisdiction of the courts of that statefor those acts.”).

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Fortunately, it is not necessary to untangle the

confused knot of caselaw surrounding the fiduciary shield’s

status within the Third Circuit. The Court will, in Gordian13

fashion, cut directly through the knot, because even if the

doctrine did apply, the fiduciary shield would not protect

Rosedale under these circumstances.

When corporate agents invoke the fiduciary shield as a

protection, courts “have held that in order to hold such a

defendant subject to personal jurisdiction, it must be shown that

[1] the defendant had a major role in the corporate structure,

Defendants concede that the Court has personal14

jurisdiction over Linden. However, Bragg does not argue thatpersonal jurisdiction was appropriate over Rosedale based on hisdirection of Linden as it made contacts with Pennsylvania. Braggrelies, instead, solely on Linden’s individual contacts. HadPlaintiff argued the former, the Court’s application of thefiduciary shield doctrine could have been a closer call.

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[2] the quality of his contacts with the state were significant,

and [3] his participation in the tortious conduct alleged was

extensive.” TJS Brokerage, 940 F. Supp. at 789. First, as to

his role in the company, Rosedale acted as the CEO and public

face of Linden. Second, as to the quality of Rosedale’s

contacts, Rosedale made numerous representations that were

broadcast through the national media and through the Internet,

via town hall meetings, that reached Pennsylvania. These were

not isolated statements, but part of a national campaign to

distinguish Second Life from other virtual worlds and induce the

purchase of virtual property. Third, and finally, Rosedale did

not simply direct others to publicize virtual property on Second

Life. He personally participated in creating such publicity and

its dissemination. Representations made as part of that

publicity are at the heart of Bragg’s case.14

Even if the fiduciary shield doctrine were expressly

recognized by the Third Circuit, Rosedale’s representations,

though made on the behalf of Linden, would still count as

contacts in the analysis of whether the Court may exercise

personal jurisdiction over him. Therefore, the Court will

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exercise personal jurisdiction over Rosedale.

III. MOTION TO COMPEL ARBITRATION

Defendants have also filed a motion to compel

arbitration that seeks to dismiss this action and compel Bragg to

submit his claims to arbitration according to the Rules of the

International Chamber of Commerce (“ICC”) in San Fransisco.

A. Relevant Facts

Before a person is permitted to participate in Second

Life, she must accept the Terms of Service of Second Life (the

“TOS”) by clicking a button indicating acceptance of the TOS.

Bragg concedes that he clicked the “accept” button before

accessing Second Life. Compl. ¶ 126. Included in the TOS are a

California choice of law provision, an arbitration provision, and

forum selection clause. Specifically, located in the fourteenth

line of the thirteenth paragraph under the heading “GENERAL

PROVISIONS,” and following provisions regarding the applicability

of export and import laws to Second Life, the following language

appears:

Any dispute or claim arising out of or in connectionwith this Agreement or the performance, breach ortermination thereof, shall be finally settled bybinding arbitration in San Francisco, California underthe Rules of Arbitration of the International Chamberof Commerce by three arbitrators appointed inaccordance with said rules. . . . Notwithstanding theforegoing, either party may apply to any court of

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competent jurisdiction for injunctive relief orenforcement of this arbitration provision withoutbreach of this arbitration provision.

TOS ¶ 13.

B. Legal Standards

1. Federal law applies

The Federal Arbitration Act (“FAA”) requires that the

Court apply federal substantive law here because the arbitration

agreement is connected to a transaction involving interstate

commerce. State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d

710, 713 n.1 (3d Cir. 2000); Marciano v. MONY Life Ins. Co., 470

F. Supp. 2d 518, 524 (E.D. Pa. 2007) (Robreno, J.); see also

Wright & Miller, Federal Practice and Procedure § 3569, at 173

(1984) (“[I]n a diversity suit . . . , the substantive rules

contained in the [Federal Arbitration] Act, based as it is on the

commerce and admiralty powers, are to be applied regardless of

state law.”).

Whether the arbitration agreement is connected to a

transaction involving interstate commerce is a factual

determination that must be made by the Court. State Farm, 233

F.3d at 713 n.1. Here, Bragg is a Pennsylvania resident. Linden

is a Delaware corporation headquartered in California. Rosedale

is a California resident. Bragg entered into the TOS and

purchased virtual land through the Internet on Second Life as a

-24-

result of representations made on the national media. The

arbitration agreement is clearly connected to interstate

commerce, and the Court will apply the federal substantive law

that has emerged from interpretation of the FAA.

2. The Legal Standard Under the FAA

Under the FAA, on the motion of a party, a court must

stay proceedings and order the parties to arbitrate the dispute

if the court finds that the parties have agreed in writing to do

so. 9 U.S.C. §§ 3, 4, 6. A party seeking to compel arbitration

must show (1) that a valid agreement to arbitrate exists between

the parties and (2) that the specific dispute falls within the

scope of the agreement. Trippe Mfg. Co. v. Niles Audio Corp.,

401 F.3d 529, 532 (3d Cir. 2005); PaineWebber, Inc. v. Hartmann,

921 F.2d 507, 511 (3d Cir. 1990).

In determining whether a valid agreement to arbitrate

exists between the parties, the Third Circuit has instructed

district courts to give the party opposing arbitration “the

benefit of all reasonable doubts and inferences that may arise,”

or, in other words, to apply the familiar Federal Rule of Civil

Procedure 56(c) summary judgment standard. Par-Knit Mills, Inc.

v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 & n.9 (3d Cir.

1980); see also Berkery v. Cross Country Bank, 256 F. Supp. 2d

359, 364 n.3 (E.D. Pa. 2003) (Robreno, J.) (applying the summary

This challenge must be determined by the Court, not an15

arbitrator. Bellevue Drug Co. v. Advance PCS, 333 F. Supp. 2d318 (E.D. Pa. 2004) (Robreno, J.). Bragg does not challengeenforceability by claiming that a provision of the arbitrationagreement will deny him a statutory right, a question ofinterpretation of the arbitration agreement which an arbitratoris “well situated to answer.” Id. (citations omitted). Rather,Bragg claims that the arbitration agreement itself wouldeffectively deny him access to an arbitrator, because the costswould be prohibitively expensive, a question that is moreappropriately reserved for the Court to answer. Id.

-25-

judgment standard to a motion to compel arbitration). While

there is a presumption that a particular dispute is within the

scope of an arbitration agreement, Volt Info. Scis., Inc. v. Bd.

of Trustees, 489 U.S. 468, 475 (1989), there is no such

“presumption” or “policy” that favors the existence of a valid

agreement to arbitrate. Marciano, 470 F. Supp. 2d at 525-26.

C. Application

1. Unconscionabilty of the Arbitration Agreement

Bragg resists enforcement of the TOS’s arbitration

provision on the basis that it is “both procedurally and

substantively unconscionable and is itself evidence of

defendants’ scheme to deprive Plaintiff (and others) of both

their money and their day in court.” Pl.’s Resp. At 16.15

Section 2 of the FAA provides that written arbitration

agreements “shall be valid, irrevocable, and enforceable, save

upon such grounds as exist at law or in equity for the revocation

of any contract.” 9 U.S.C. § 2. Thus, “generally applicable

Both parties agree that California law should govern16

the question of whether the arbitration provision isunconscionable.

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contract defenses, such as fraud, duress, or unconscionability,

may be applied to invalidate arbitration agreements without

contravening § 2.” Doctor’s Assocs. v. Casarotto, 517 U.S. 681,

687 (1996) (citations omitted). When determining whether such

defenses might apply to any purported agreement to arbitrate the

dispute in question, “courts generally . . . should apply

ordinary state-law principles that govern the formation of

contracts.” First Options of Chicago, Inc. v. Kaplan, 514 U.S.

938, 944 (1995). Thus, the Court will apply California state

law to determine whether the arbitration provision is

unconscionable.16

Under California law, unconscionability has both

procedural and substantive components. Davis v. O’Melveny &

Myers, __ F.3d __, 2007 WL 1394530, at *4 (9th Cir.

May 14, 2007); Comb v. Paypal, Inc., 218 F. Supp. 2d 1165, 1172

(N.D. Cal. 2002). The procedural component can be satisfied by

showing (1) oppression through the existence of unequal

bargaining positions or (2) surprise through hidden terms common

in the context of adhesion contracts. Comb, 218 F. Supp. 2d at

1172. The substantive component can be satisfied by showing

overly harsh or one-sided results that “shock the conscience.”

Id. The two elements operate on a sliding scale such that the

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more significant one is, the less significant the other need be.

Id. at 743; see Armendariz v. Foundation Health Psychcare Servs.,

Inc., 6 P.3d 669, 690 (Cal. 2000) (“[T]he more substantively

oppressive the contract term, the less evidence of procedural

unconscionability is required to come to the conclusion that the

term is unenforceable, and vice versa.”). However, a claim of

unconscionability cannot be determined merely by examining the

face of the contract; there must be an inquiry into the

circumstances under which the contract was executed, and the

contract’s purpose, and effect. Comb, 218 F. Supp. 2d at 1172.

(a) Procedural Unconscionability

A contract or clause is procedurally unconscionable if

it is a contract of adhesion. Comb, 218 F. Supp. 2d at 1172;

Flores v. Transamerica HomeFirst, Inc., 113 Cal. Rptr. 2d 376,

381-82 (Ct. App. 2001). A contract of adhesion, in turn, is a

“standardized contract, which, imposed and drafted by the party

of superior bargaining strength, relegates to the subscribing

party only the opportunity to adhere to the contract or reject

it.” Comb, 218 F. Supp. 2d at 1172; Armendariz, 6 P.3d at 690.

Under California law, “the critical factor in procedural

unconscionability analysis is the manner in which the contract or

the disputed clause was presented and negotiated.” Nagrampa v.

MailCoups, Inc., 469 F.3d 1257, 1282 (9th Cir. 2006). “When the

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weaker party is presented the clause and told to ‘take it or

leave it’ without the opportunity for meaningful negotiation,

oppression, and therefore procedural unconscionability, are

present.” Id. (internal quotation and citation omitted); see

also Martinez v. Master Prot. Corp., 12 Cal. Rptr.3d 663, 669

(Ct. App.2004) (“An arbitration agreement that is an essential

part of a ‘take it or leave it’ employment condition, without

more, is procedurally unconscionable.”) (citations omitted);

O’Melveny & Myers, __ F.3d __, 2007 WL 1394530 at *6 (holding

arbitration agreement presented on a take-it-or-leave-it basis

was procedurally unconscionable, notwithstanding the fact that

employee was provided three months to walk away from employment

before agreement became effective).

The TOS are a contract of adhesion. Linden presents

the TOS on a take-it-or-leave-it basis. A potential participant

can either click “assent” to the TOS, and then gain entrance to

Second Life’s virtual world, or refuse assent and be denied

access. Linden also clearly has superior bargaining strength

over Bragg. Although Bragg is an experienced attorney, who

believes he is expert enough to comment on numerous industry

standards and the “rights” or participants in virtual worlds, see

Pl.’s Resp., Ex. A ¶¶ 59-64, he was never presented with an

opportunity to use his experience and lawyering skills to

negotiate terms different from the TOS that Linden offered.

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Moreover, there was no “reasonably available market

alternatives [to defeat] a claim of adhesiveness.” Cf. Dean

Witter Reynolds, Inc. v. Superior Court, 259 Cal. Rptr. 789, 795

(Ct. App. 1989) (finding no procedural unconscionability because

there were other financial institutions that offered competing

IRA’s which lacked the challenged provision). Although it is not

the only virtual world on the Internet, Second Life was the first

and only virtual world to specifically grant its participants

property rights in virtual land.

The procedural element of unconscionability also

“focuses on . . . surprise.” Gutierrez v. Autowest, Inc.,7 Cal.

Rptr. 3d 267, 275 (Ct. App. 2003) (citations omitted). In

determining whether surprise exists, California courts focus not

on the plaintiff’s subjective reading of the contract, but

rather, more objectively, on “the extent to which the supposedly

agreed-upon terms of the bargain are hidden in the prolix printed

form drafted by the party seeking to enforce the disputed terms.”

Id. In Gutierrez, the court found such surprise where an

arbitration clause was “particularly inconspicuous, printed in

eight-point typeface on the opposite side of the signature page

of the lease.” Id.

Here, although the TOS are ubiquitous throughout Second

For example, both the “Auctions” and the “Auctions FAQ”17

webpages in Second Life contain hyperlinks to the TOS. See BraggBr., Ex. 2 at 9, 15.

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Life, Linden buried the TOS’s arbitration provision in a17

lengthy paragraph under the benign heading “GENERAL PROVISIONS.”

See TOS ¶ 13. Compare Net Global Mktg. v. Dialtone, Inc., No.

04-56685, 2007 U.S. App. LEXIS 674 at *7 (9th Cir. Jan. 9, 2007)

(finding procedural unconscionability where “[t]here was no

‘clear heading’ in the Terms of Service that could refute a claim

of surprise; to the contrary, the arbitration clause is listed in

the midst of a long section without line breaks under the

unhelpful heading of ‘Miscellaneous’”) and Higgins v. Superior

Court, 45 Cal. Rptr. 3d 293, 297 (Ct. App. 2006) (holding

arbitration agreement unconscionable where “[t]here is nothing in

the Agreement that brings the reader’s attention to the

arbitration provision”) with Boghos v. Certain Underwriters at

Lloyd’s of London, 115 P.3d 68, 70 (Cal. 2005) (finding

arbitration clause was enforceable where it was in bolded font

and contained the heading “BINDING ARBITRATION”). Linden also

failed to make available the costs and rules of arbitration in

the ICC by either setting them forth in the TOS or by providing a

hyper-link to another page or website where they are available.

Bragg Decl. ¶ 20.

Comb is most instructive. In that case, the plaintiffs

challenged an arbitration provision that was part of an agreement

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to which they had assented, in circumstances similar to this

case, by clicking their assent on an online application page.

218 F. Supp. 2d at 1169. The defendant, PayPal, was a large

company with millions of individual online customers. Id. at

1165. The plaintiffs, with one exception, were all individual

customers of PayPal. Id. Given the small amount of the average

transaction with PayPal, the fact that most PayPal customers were

private individuals, and that there was a “dispute as to whether

PayPal’s competitors offer their services without requiring

customers to enter into arbitration agreements,” the court

concluded that the user agreement at issue “satisfie[d] the

criteria for procedural unconscionability under California law.”

Id. at 1172-73. Here, as in Comb, procedural unconscionability

is satisfied.

(b) Substantive Unconscionability

Even if an agreement is procedurally unconscionable,

“it may nonetheless be enforceable if the substantive terms are

reasonable.” Id. at 1173 (citing Craig v. Brown & Root, Inc.,

100 Cal. Rptr. 2d 818 (Ct. App. 2000) (finding contract of

adhesion to arbitrate disputes enforceable)). Substantive

unconscionability focuses on the one-sidedness of the contract

terms. Armendariz, 6 P.3d at 690; Flores, 113 Cal. Rptr. 2d at

381-82 . Here, a number of the TOS’s elements lead the Court to

The Court notes that the Third Circuit has found that18

“parties to an arbitration agreement need not equally bind eachother with respect to an arbitration agreement if they haveprovided each other with consideration beyond the promise toarbitrate.” Harris v. Green Tree Fin. Corp., 183 F.3d 173,180-81 (3d Cir. 1999). In Green Tree, however, the Third Circuitwas applying Pennsylvania law, not California law. Id. In anyevent, Pennsylvania courts have criticized this aspect of GreenTree’s holding. E.g. Lytle v. Citifinancial Servs., 810 A.2d643, 665 (Pa. Super. Ct. 2002) (holding that, under Pennsylvanialaw, the reservation by a company to itself of access to thecourts, to the exclusion of the consumer, created a presumptionof unconscionability, “which in the absence of ‘businessrealities’ that compel inclusion of such a provision in anarbitration provision, render[ed] the arbitration provisionunconscionable and unenforceable”).

-32-

conclude that Bragg has demonstrated that the TOS are

substantively unconscionable.

(i) Mutuality

Under California law, substantive unconscionability has

been found where an arbitration provision forces the weaker party

to arbitrate claims but permits a choice of forums for the

stronger party. See, e.g., Ticknor v. Choice Hotels Int’l, Inc.,

265 F.3d 931, 940-41 (9th Cir. 2001); Mercuro v. Superior Court,

116 Cal. Rptr. 2d 671, 675 (Ct. App. 2002). In other words, the

arbitration remedy must contain a “modicum of bilaterality.”

Armendariz, 6 P.3d at 692. This principle has been extended to

arbitration provisions that allow the stronger party a range of

remedies before arbitrating a dispute, such as self-help, while

relegating to the weaker party the sole remedy of arbitration.18

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In Comb, for example, the court found a lack of

mutuality where the user agreement allowed PayPal “at its sole

discretion” to restrict accounts, withhold funds, undertake its

own investigation of a customer’s financial records, close

accounts, and procure ownership of all funds in dispute unless

and until the customer is “later determined to be entitled to the

funds in dispute.” 218 F. Supp. 2d at 1173-74. Also significant

was the fact that the user agreement was “subject to change by

PayPal without prior notice (unless prior notice is required by

law), by posting of the revised Agreement on the PayPal website.”

Id.

Here, the TOS contain many of the same elements that

made the PayPal user agreement substantively unconscionable for

lack of mutuality. The TOS proclaim that “Linden has the right

at any time for any reason or no reason to suspend or terminate

your Account, terminate this Agreement, and/or refuse any and all

current or future use of the Service without notice or liability

to you.” TOS ¶ 7.1. Whether or not a customer has breached the

Agreement is “determined in Linden’s sole discretion.” Id.

Linden also reserves the right to return no money at all based on

mere “suspicions of fraud” or other violations of law. Id.

Finally, the TOS state that “Linden may amend this Agreement . .

. at any time in its sole discretion by posting the amended

Agreement [on its website].” TOS ¶ 1.2.

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In effect, the TOS provide Linden with a variety of

one-sided remedies to resolve disputes, while forcing its

customers to arbitrate any disputes with Linden. This is

precisely what occurred here. When a dispute arose, Linden

exercised its option to use self-help by freezing Bragg’s

account, retaining funds that Linden alone determined were

subject to dispute, and then telling Bragg that he could resolve

the dispute by initiating a costly arbitration process. The TOS

expressly authorized Linden to engage in such unilateral conduct.

As in Comb, “[f]or all practical purposes, a customer may resolve

disputes only after [Linden] has had control of the disputed

funds for an indefinite period of time,” and may only resolve

those disputes by initiating arbitration. 218 F. Supp. 2d at

1175.

Linden’s right to modify the arbitration clause is also

significant. “The effect of [Linden’s] unilateral right to

modify the arbitration clause is that it could . . . craft

precisely the sort of asymmetrical arbitration agreement that is

prohibited under California law as unconscionable. Net Global

Mktg., 2007 U.S. App. LEXIS 674, at *9. This lack of mutuality

supports a finding of substantive unconscionability.

(ii) Costs of Arbitration and Fee-Sharing

Bragg claims that the cost of an individual arbitration

The Court’s calculations are based on its finding that19

$75,000 is at issue, the minimum necessary to satisfy therequirements of diversity jurisdiction in this case. After ahearing on Bragg’s motion to remand this case back to statecourt, the Court found that this jurisdictional threshold hadbeen met (doc. no. 14).

-35-

under the TOS is likely to exceed $13,540, with an estimated

initiation cost of at least $10,000. Pl.’s Reply at 5-6. He has

also submitted a Declaration of Personal Financial Information

stating that such arbitration would be cost-prohibitive for him

(doc. no. 41). Linden disputes Bragg’s calculations, estimating

that the costs associated with arbitration would total $7,500,

with Bragg advancing $3,750 at the outset of arbitration. See

Dfts.’ Reply at 11.

At oral argument, the parties were unable to resolve

this dispute, even after referencing numerous provisions and

charts contained within the ICC Rules. See Tran. of 2/5/07 Hrg.

at 65-74. The Court’s own calculations, however, indicate that

the costs of arbitration, excluding arbitration, would total

$17,250. With a recovery of $75,000, the ICC’s administrative19

expenses would be $2,625 (3.5% of $75,000). See ICC Rules at 28.

In addition, arbitrator’s fees could be set between 2.0% ($1,500)

and 11.0% ($8,250) of the amount at issue per arbitrator. Id.

If the ICC set the arbitrator’s fees at the mid-point of this

range, the arbitrator’s fees would be $4,875 per arbitrator. Id.

Here, however, the TOS requires that three arbitrators be used to

At oral argument, Bragg asserted repeatedly that the20

schedule of arbitrator’s fees in the ICC Rules represents the fee“per arbitrator,” which would have to be tripled in this case asthe TOS provides for three arbitrators. See Tran. of 2/5/07 Hrg.at pp. 68, 74. Defendants never refuted this point. See id.

-36-

resolve a dispute. TOS ¶ 13. Thus, the Court estimates the

costs of arbitration with the ICC to be $17,250 ($2,625 + (3 x

$4,875)), although they could reach as high as $27,375 ($2,625 +

(3 x $8,250)).20

These costs might not, on their own, support a finding

of substantive unconscionability. However, the ICC Rules also

provide that the costs and fees must be shared among the parties,

and an estimate of those costs and fees must be advanced at the

initiation of arbitration. See ICC Rules of Arbitration, Ex. D

to Dfts.’ Reply at 28-30. California law has often been applied

to declare arbitration fee-sharing schemes unenforceable. See

Ting v. AT&T, 319 F.3d 1126, 1151 (9th Cir. 2003). Such schemes

are unconscionable where they “impose[] on some consumers costs

greater than those a complainant would bear if he or she would

file the same complaint in court.” Id. In Ting, for example,

the Ninth Circuit held that a scheme requiring AT&T customers to

split arbitration costs with AT&T rendered an arbitration

provision unconscionable. Id. See also Circuit City Stores v.

Adams, 279 F.3d 889, 894 (9th Cir. 2002) (“This fee allocation

scheme alone would render an arbitration agreement

unenforceable.”); Armendariz, 6 P.3d at 687 (“[T]he arbitration

-37-

process cannot generally require the employee to bear any type of

expenses that the employee would not be required to bear if he or

she were free to bring the action in court.”) (emphasis in

original); Ferguson v. Countrywide Credit Indus., 298 F.3d 778,

785 (9th Cir. 2002) (“[A] fee allocation scheme which requires

the employee to split the arbitrator’s fees with the employer

would alone render an arbitration agreement substantively

unconscionable.”) (emphasis added).

Here, even taking Defendants characterization of the

fees to be accurate, the total estimate of costs and fees would

be $7,500, which would result in Bragg having to advance $3,750

at the outset of arbitration. See Dfts.’ Reply at 11. The

court’s own estimates place the amount that Bragg would likely

have to advance at $8,625, but they could reach as high as

$13,687.50. Any of these figures are significantly greater than

the costs that Bragg bears by filing his action in a state or

federal court. Accordingly, the arbitration costs and fee-

splitting scheme together also support a finding of

unconscionability.

(iii) Venue

The TOS also require that any arbitration take place in

San Francisco, California. TOS ¶ 13. In Comb, the Court found

that a similar forum selection clause supported a finding of

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substantive unconscionability, because the place in which

arbitration was to occur was unreasonable, taking into account

“the respective circumstances of the parties.” 218 F. Supp. 2d

at 1177. As in Comb, the record in this case shows that Linden

serves millions of customers across the United States and that

the average transaction through or with Second Life involves a

relatively small amount. See id. In such circumstances,

California law dictates that it is not “reasonable for individual

consumers from throughout the country to travel to one locale to

arbitrate claims involving such minimal sums.” Id. Indeed,

“[l]imiting venue to [Linden’s] backyard appears to be yet one

more means by which the arbitration clause serves to shield

[Linden] from liability instead of providing a neutral forum in

which to arbitrate disputes.” Id.

(iv) Confidentiality Provision

Arbitration before the ICC, pursuant to the TOS, must

be kept confidential pursuant to the ICC rules. See ICC Rules at

33. Applying California law to an arbitration provision, the

Ninth Circuit held that such confidentiality supports a finding

that an arbitration clause was substantively unconscionable.

Ting, 319 F.3d at 1152. The Ninth Circuit reasoned that if the

company succeeds in imposing a gag order on arbitration

proceedings, it places itself in a far superior legal posture by

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ensuring that none of its potential opponents have access to

precedent while, at the same time, the company accumulates a

wealth of knowledge on how to negotiate the terms of its own

unilaterally crafted contract. Id. The unavailability of

arbitral decisions could also prevent potential plaintiffs from

obtaining the information needed to build a case of intentional

misconduct against a company. See id.

This does not mean that confidentiality provisions in

an arbitration scheme or agreement are, in every instance, per se

unconscionable under California law. See Mercuro v. Superior

Court, 116 Cal. Rptr.2d 671, 679 (Ct. App.2002) (“While [the

California] Supreme Court has taken notice of the ‘repeat player

effect,’ the court has never declared this factor renders the

arbitration agreement unconscionable per se.”) (citations

omitted). Here, however, taken together with other provisions of

the TOS, the confidentiality provision gives rise for concern of

the conscionability of the arbitration clause. See also

O’Melveny & Myers, __ F.3d __, 2007 WL 1394530, at *11 (“The

concern is not with confidentiality itself but, rather, with the

scope of the language of the [arbitration agreement.]”).

Thus, the confidentiality of the arbitration scheme

that Linden imposed also supports a finding that the arbitration

clause is unconscionable.

-40-

(v) Legitimate Business Realities

Under California law, a contract may provide a “margin

of safety” that provides the party with superior bargaining

strength protection for which it has a legitimate commercial

need. “However, unless the ‘business realities’ that create the

special need for such an advantage are explained in the contract

itself, . . . it must be factually established.” Stirlen v.

Supercuts, Inc., 60 Cal. Rptr. 2d 138, 148 (Ct. App. 1997). When

a contract is alleged to be unconscionable, “the parties shall be

afforded a reasonable opportunity to present evidence as to its

commercial setting, purpose, and effect to aid the court in

making the determination.” Cal. Civ. Code § 1670.5. The

statutory scheme reflects “legislative recognition that a claim

of unconscionability often cannot be determined merely by

examining the face of the contract, but will require inquiry into

its setting, purpose, and effect.” Stirlen, 60 Cal. Rptr. 2d at

148 (citations and internal quotations omitted).

Here, neither in its briefing nor at oral argument did

Linden even attempt to offer evidence that “business realities”

justify the one-sidedness of the dispute resolution scheme that

the TOS constructs in Linden’s favor.

(c) Conclusion

When a dispute arises in Second Life, Linden is not

-41-

obligated to initiate arbitration. Rather, the TOS expressly

allow Linden, at its “sole discretion” and based on mere

“suspicion,” to unilaterally freeze a participant’s account,

refuse access to the virtual and real currency contained within

that account, and then confiscate the participant’s virtual

property and real estate. A participant wishing to resolve any

dispute, on the other hand, after having forfeited its interest

in Second Life, must then initiate arbitration in Linden’s place

of business. To initiate arbitration involves advancing fees to

pay for no less than three arbitrators at a cost far greater than

would be involved in litigating in the state or federal court

system. Moreover, under these circumstances, the confidentiality

of the proceedings helps ensure that arbitration itself is fought

on an uneven field by ensuring that, through the accumulation of

experience, Linden becomes an expert in litigating the terms of

the TOS, while plaintiffs remain novices without the benefit of

learning from past precedent.

Taken together, the lack of mutuality, the costs of

arbitration, the forum selection clause, and the confidentiality

provision that Linden unilaterally imposes through the TOS

demonstrate that the arbitration clause is not designed to

provide Second Life participants an effective means of resolving

disputes with Linden. Rather, it is a one-sided means which

tilts unfairly, in almost all situations, in Linden’s favor. As

Having determined that the arbitration provision is21

unenforceable as an unconscionable agreement, the Court need notdetermine whether the specific dispute in this case falls withinthe scope of that agreement. The Court notes, however, that thearbitration clause clearly exempts from its scope claims for“injunctive relief.” See TOS ¶ 13. At the hearing on the motionto compel arbitration, the Court asked whether Bragg wanted theCourt to decide the motion to compel arbitration, or allowPlaintiff file an amended complaint seeking only injunctiverelief. See Tran. of 2/5/07 Hrg. at pp. 89-90, 108. He electedto file an amended complaint. Id. Subsequently, however, hefiled supplemental briefing in support of his original complaint,and after Defendants objected, filed a Proposed Amended Complaint“[a]s promised.” Pl.s’ Suppl. Brf. in Opp. to Mot. to Compel at12 (doc. no. 43). During a telephone conference on May 8, 2007,however, Bragg finally clarified that he intended to stand on hisoriginal complaint.

-42-

in Comb, through the use of an arbitration clause, Linden

“appears to be attempting to insulate itself contractually from

any meaningful challenge to its alleged practices.” 218 F. Supp.

2d at 1176.

The Court notes that the concerns with procedural

unconscionability are somewhat mitigated by Bragg’s being an

experienced attorney. However, “because the unilateral

modification clause renders the arbitration provision severely

one-sided in the substantive dimension, even moderate procedural

unconscionability renders the arbitration agreement

unenforceable.” Net Global Mktg., 2007 U.S. App. LEXIS 674, at

*9 (internal citations omitted).

Finding that the arbitration clause is procedurally and

substantively unconscionable, the Court will refuse to enforce

it.21

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2. “Bluelining” the Arbitration Agreement

Alternatively, Linden has offered to ameliorate the

one-sidedness of the TOS’s arbitration provision by suggesting

that Linden could waive the requirements for three arbitrators,

post the initial fees of arbitration, and agree to arbitrate in

Philadelphia instead of San Francisco. See Dfts.’ Sur-Reply Brf.

at 2-3 (doc. no. 2).

California law allows a court to “blueline” an

arbitration agreement to remove an element that renders it

substantively unconscionable. See Cal. Civ. Code § 1670.5(a)

(“If the court as a matter of law finds the contract or any

clause of the contract to have been unconscionable at the time it

was made the court may refuse to enforce the contract, or it may

enforce the remainder of the contract without the unconscionable

clause, or it may so limit the application of any unconscionable

clause as to avoid any unconscionable result.”). However, a

court is not obligated to blueline when an “arbitration provision

is so permeated by substantive unconscionability that it cannot

be cured by severance or any other action short of rewriting the

contract.” Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1293 (9th

Cir. 2006). Where an arbitration provision has “multiple defects

that indicate a systematic effort to impose arbitration on [the

plaintiff], not simply as an alternative to litigation, but as an

inferior forum that works to [the defendant’s] advantage,” and

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there simply is “no single provision [the court] can strike or

restrict in order to remove the unconscionable taint from the

agreement,” the court can simply refuse to enforce the

arbitration provision. Id. (citing Armendariz, 6 P.3d at 696).

The arbitration clause before the Court is simply not

one where a single term may be stricken to render the agreement

conscionable. “The unilateral modification ‘pervade[s]’ and

‘taint[s] with illegality’ the entire agreement to arbitrate,

[and] severance of terms within the arbitration clause would not

cure the problem. Net Global Mktg., 2007 U.S. App. LEXIS 674, at

*9 (quoting Circuit City, 279 F.3d at 895 (citations omitted));

see also Armendariz, 6 P.3d at 697 (“[M]ultiple defects indicate

a systematic effort to impose arbitration on an employee not

simply as an alternative to litigation, but as an inferior forum

that works to the employer’s advantage. . . . Because a court is

unable to cure this unconscionability through severance or

restriction, and is not permitted to cure it through reformation

and augmentation, it must void the entire agreement.”).

Davis, 2007 WL 1394530, at * 15 (refusing to rewrite arbitration

agreement that contained four substantiviely unconscionable or

void terms because “[t]hese provisions cannot be stricken or

excised without gutting the agreement”). Bluelining in this case

will require the redrafting of the agreement.

The Court declines to rewrite the agreement, at

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Linden’s request, to save an unconscionable arbitration provision

which Linden itself drafted and now seeks to enforce. Rather

than provide a reasonable alternative for dispute resolution,

this agreement compels a one-sided resolution of disputes between

the parties.

IV. CONCLUSION

For the reasons set forth above, the Court will deny

Rosedale’s motion to dismiss for lack of jurisdiction. The Court

will also deny Defendants’ motion to compel arbitration. An

appropriate order follows.

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IN THE UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF PENNSYLVANIA

: CIVIL ACTIONMARC BRAGG, : NO. 06-4925

:Plaintiff, :

:v. :

:LINDEN RESEARCH, INC. and :PHILIP ROSEDALE, :

:Defendants. :

ORDER

AND NOW, this 30th day of May, 2007, it is hereby

ORDERED that defendant Philip Rosedale’s Motion to Dismiss for

Lack of Jurisdiction (doc. no. 2) and defendant Linden Research,

Inc.’s Motion to Compel Arbitration (doc. no. 3) are DENIED.

It is FURTHER ORDERED that Plaintiff’s Motion for Leave

to File Supplemental Briefs in Opposition to Defendants Motions

to Dismiss and to Compel Arbitration to Address Issues Raised by

the Court at Argument on February 5, 2007 (doc. no. 34) is DENIED

as moot.

AND IT IS SO ORDERED.

S/Eduardo C. Robreno EDUARDO C. ROBRENO, J.